The Public Company Accounting Oversight Board has issued a $1.5 million assessment against an accounting firm’s work with a north Wilmington financial services company.
The fine was levied against Grant Thornton. It was the first such action taken against an accounting firm.
The Board also found that, in one of those audits, the 2013 audit of The Bancorp, Inc., Grant Thornton violated auditing standards. The Bancorp offers prepaid cards and operated a commercial lending business.
“A firm’s system of quality control should reasonably assure that personnel with the right skills and experience are assigned to public company audits. When quality controls concerning personnel assignment and oversight fail, serious violations of auditing standards can result, as they did here, to the detriment of investors,” said James R. Doty, PCAOB chairman. “Effectively designed and operated quality control systems are crucial to conducting audits in compliance with PCAOB standards. This matter should serve as a case study for what not to do.”
The board also sanctioned David M. Burns, a former Grant Thornton partner, who served as the engagement partner for the 2013 Bancorp audit, for his violations of auditing standards.
Burns was barred from associating with a PCAOB-registered accounting firm, with the right to petition to remove the bar after one year, with further limits on his auditing activities for an additional year, censured, and ordered to pay a $15,000 penalty. Neither of the respondents admitted or denied the findings contained in the Board’s orders.
According to a release, the board found, among others things, that Grant Thornton knew that Burns and another partner had failed to properly perform audits in prior years, yet continued to allow them to serve as engagement partners, without sufficient support or monitoring when it assigned them to serve as engagement partners in connection with two separate 2013 public company audits.
With respect to the 2013 audit of Bancorp’s allowance for loan and lease losses, the Board found that Grant Thornton and Burns, among other things, failed to sufficiently consider red flags indicating that certain commercial loans were impaired and relied on management representations without obtaining relevant and reliable evidence to corroborate those representations.
On April 1, 2015, Bancorp announced that its previously issued financial statements for the years ended December 31, 2012, and 2013, could no longer be relied upon because certain expected losses related to commercial loans were taken in incorrect periods.
The restatement resulted in a $141 million reduction in Bancorp’s net loans as of December 31, 2013, as well as increases in Bancorp’s provision for loan and leaselosses of $28.9 million (or 98 percent) during 2013.
The Bancorp has undergone a management change.
The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SECrules.